SPOT TRADING (10% to @Tron-Fan-Club)

Hello everyone,

I'm delighted to be a member of this community and today I would like us to talk about spot trading.

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Spot trading is a type of trade that happens at the spot. It involves the direct purchase of financial assets such as cryptocurrencies, forex, stock, etc.

Spot trading in cryptocurrency occurs on the spot market and it offers an immediate way to trade. Most newbies in cryptocurrency tend to have thier first trading experience on the spot market and this is due to how easy and common it is.

WHAT IS SPOT MARKET

Spot market is simply a financial market where traders can exchange financial assets with an immediate effect.

On a spot market, a trader but purchases a desired asset using fiat or anyother currency of choice from a seller who already as the asset placed on sale at a fixed price. This type of market is also regarded as cash market because traders make payment before hand.

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What is spot trading

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Spot trading its a type of financial trading that involves purchasing financial assets without delay. Spot traders purchase this assets with the hope of selling them back on the spot market when the value appreciates.

Making use of the spot market, spot traders can sell or purchase financial assets at the exact market price by making use of market order. This exact market price is also regarded as the spot price.

Spot price changes constantly and for that reason, there's no guarantee that your order won't change in value despite purchasing using market order. This is because they might not be enough asset volume to satisfy your order at a particular time. This will make you to wait for more volumes which are likely to come at a different market price.

Spot market and future market

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We have already looked into spot market and have seen that it is a type of market that makes instant delivery or almost instant delivery.

Futrues on the other hand is a type of financial market that has contracts paid for at a future date thus giving it the name futures.

A buyer agrees to trade a certain amount of asset with a seller for a price in the future and when it agreement matures, both parties comes to a cash settlement rather than asset delivery.

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Difference between Spot trading and Margin trading

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By now we are expected to be familiar with spot trading for it is the type that allows you to fully purchase asset almost immediately using your available balance.

Margin trading on the other hand allows you to borrow funds in other to open positions bigger than your available capital. This also allows the possibility of making significant profits and at the same time, losses can be significant too.

The borrowed funds, comes with interest and can't be lost on trade because the third-party lender tend to have their eyes on it and won't hesitate to cut your trade off once there's possibility of lossing borrowed asset. This trade cut-off is what we know as margin call.

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Advantages and Disadvantages of spot market

• Advantages

✅Prices are quite transparent and are fully dependent on supply and demand just as a financial market should be.

✅Spot trading is less complex and thus easy for newbies to participate.

✅The risk is minimal and there's no fear of liquidation.

✅Capital trades fully belongs to the trader and not borrowed from a third-party on the trading platform.

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• Disadvantages

✅Profit making is minimal on spot trading because there's no leverage to increase positions.

✅To be more profitable on spot trading, a trader is expected to trade with a reasonable amount of capital.

✅A trader is forced to keep safe the asset purchased on the spot market for a good period of time in other to make profit. This is unlike the futures market whereby profit making is faster and a trader doesn't have to keep safe the purchased asset for a long period of time.

CONCLUSION

The spot market is a financial market which allows traders to buy or sell financial asset at the spot. This type of trading is quite easy even for newbies to take part in and less risky unlike the futures market.

In as much spot trading is efficient, it also has its disadvantages which involves slow profit making. Therefore it is best for traders to know how to engage in both spot and leverage trading in other to utilize the advantages that both offers.